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China’s Market News: Energy Firms Start to Default on Debt

China’s Market News: Energy Firms Start to Default on Debt

Renee Mu, Currency Analyst

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- A major Chinese steel producer has defaulted on an 800-million yuan bond and is likely to fail on another 1-billion yuan bond in a week.

- China’s manufacturing and energy industries show contractions in January and February.

- The NRDC keeps domestic oil prices unchanged at $40/barrel for the fifth consecutive time.

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Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- National Reform and Development Commission (NRDC) released energy production figures in January and February. In the first two months, total coal production dropped 6.4% to 513 million tons; crude steel fell 5.7% to 121.1 million tons; cement production dropped 8.2% to 238.8 million tons. China has been introducing policies designated to cut excess productions in manufacturing industries. The January and February data shows that these policies have been taken effect.

- A major steel producer, Dongbei Special Steel Group, has defaulted on an 800-million yuan bond on March 28. It has another 1-billion yuan bond that will mature on April 3 and is likely to default as well. The company’s debt to asset ratio has remained above 84% since 2010. China’s manufacturing firms are facing oversupply and a drop in prices. Coupled with aggressive borrowing made earlier and tightened controls on banks issuing new loans, many firms lack short-term liquidity and face insolvency.

Another recent case was China New Star Energy Co. The oil company defaulted on a 60-million yuan bond on March 21. It is the first company listing on ChiNext Board that failed to make bond payments.

China Finance Information: A finance online media administrated by Xinhua Agency

- China announced on March 28 to keep domestic oil prices unchanged at $40/barrel for the fifth consecutive time in 2016. Chinese oil and gas companies were hurt significantly by the drop in international oil prices last year. PetroChina, China’s largest state-owned oil and gas company, reported the worst annual net profit in 2015 since it was founded in 1999. Chinese government has made it a national target to help energy firms to reform by providing subsidies for their production cuts and maintaining a domestic floor price of $40/barrel.

PBOC News: China’s Central Bank

- China’s Central Bank published trade data for current account in February. The total income gained from goods and services was 877.0 billion yuan ($134.3 billion) and the total outlay was 812.3 billion yuan ($124.4). Net surplus dropped to 64.6 billion yuan ($9.9 billion) from 229.2 billion yuan ($35.0 billion) in January.

Hexun News: Chinese leading online media of financial news

- Hexun News quoted an analyst’s comment from China International Capital Corp (CICC) that Chinese equities have more room to rebound. CICC has recently raised forecast on earnings growth in equities to 5.1% from 4.0%. CICC is a leading investment banking firm in China.

Written by Renee Mu, DailyFX Research Team

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.